International Paper(IP) - 2023 Q4 - Annual Report

Part I Business Overview International Paper is a global producer of fiber-based packaging and pulp, strategically divesting Ilim and closing mills in 2023 - International Paper is a global producer of renewable fiber-based packaging and pulp products with operations in North America, Latin America, Europe, and North Africa[9] - The company completed the sale of its 50% equity interest in Ilim S.A. on September 18, 2023, divesting all investments in Russia[13] - International Paper permanently closed its containerboard mill in Orange, Texas, and ceased production on two pulp machines at Riegelwood, NC, and Pensacola, FL mills in December 2023, resulting in approximately $347 million in non-cash asset write-offs and accelerated depreciation, and $81 million in cash severance and shutdown charges for the mill closure, plus $75 million and $37 million respectively for the machine shutdowns[14] Capital Spending | Year | Capital Spending (approx.) | | :--- | :--- | | 2019-2023 | $4.6 billion | | 2023 | $1.1 billion | | 2024 (expected) | $800 million - $1.0 billion | General The company operates globally in Industrial Packaging and Global Cellulose Fibers, guided by core values - International Paper operates 23 pulp and packaging mills, 162 converting and packaging plants, 16 recycling plants, and three bag facilities in the U.S. as of December 31, 2023, with additional facilities in Canada, Europe, North Africa, and Latin America[10] - The company's businesses are separated into two segments: Industrial Packaging and Global Cellulose Fibers[12] - Core values, known as 'The IP Way,' include safety, ethics, and stewardship, with new values added in 2023: Think the Customer and Include and Engage[11][17] Human Capital International Paper employs approximately 39,000 globally, focusing on safety, development, and diversity goals - As of December 31, 2023, International Paper had approximately 39,000 employees globally, with nearly 33,000 in the U.S. Of U.S. employees, 22,900 are hourly, with unions representing about 14,200[21] - The company emphasizes safety, employee wellbeing (EAP), continuous learning (4.6 million learning activities in 2023), leadership development (REACH, Global Manufacturing Training Initiative, IP Leadership Institute), and tuition reimbursement/student loan assistance[24][25][26][27][28][30] - In 2023, 'Include and Engage' was added as a core value, with a Vision 2030 goal to achieve 30% overall representation of women, 50% women in salaried positions, and 30% racial and ethnic minority representation in U.S. salaried positions[33] - The company invested approximately $20 million in community engagement in 2023, with a Vision 2030 goal to improve the lives of 100 million people, including through its award-winning 'Fighting Period Poverty in Our Communities' program[39][40][41] Competition and Costs The pulp and packaging sectors are highly competitive, driven by price, cost, product quality, and services - The pulp and packaging sectors are large, fragmented, and highly competitive, with competition from other forest products companies and substitutes for wood-fiber products[44] - Competitive factors include price, cost, product quality, and services[45] Marketing and Distribution Products are sold directly to end users and converters, and through agents, resellers, and distributors - The company sells products directly to end users and converters, as well as through agents, resellers, and distributors[46] Description of Principal Products Principal products are detailed in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations - Principal products are described in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, pages 35 and 36[46] Sales Volumes by Product This section provides a table detailing sales volumes across industrial packaging and global cellulose fiber products Sales Volumes by Product (in thousands of short tons, except as noted) | Product | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Industrial Packaging | | | | | Corrugated Packaging (b) | 9,428 | 10,202 | 10,787 | | Containerboard | 2,604 | 2,642 | 2,893 | | Recycling | 2,152 | 2,190 | 2,223 | | Saturated Kraft | 160 | 188 | 186 | | Gypsum/Release Kraft | 237 | 251 | 234 | | EMEA Packaging (b) | 1,282 | 1,376 | 1,546 | | Total Industrial Packaging | 15,863 | 16,849 | 17,869 | | Global Cellulose Fibers (in thousands of metric tons) (c) | 2,681 | 2,893 | 2,970 | Government Regulation The company operates globally, subject to diverse laws and regulations, incurring compliance costs and facing potential penalties - The company operates globally and is subject to various laws and regulations governing business, manufacturing, and environmental protection in each jurisdiction[50] - Compliance costs are incurred, and violations can lead to substantial fines, sanctions, and reputational damage[50] Environmental Protection Stewardship is a core value, with Vision 2030 goals for sustainable operations and significant environmental capital expenditures - Stewardship is a core value, with Vision 2030 goals focused on healthy forests, thriving communities, sustainable operations, and renewable solutions[51][53] - The company spent approximately $40 million in 2023 on environmental capital projects and expects to spend $35 million in 2024, with similar projections for 2025 and 2026[54] - International Paper is a Potentially Responsible Party (PRP) in environmental remediation actions under CERCLA and similar state laws, with liability typically allocated among PRPs[56] Climate Change The company recognizes climate change impacts, aligning with TCFD and setting Vision 2030 goals for GHG emission reduction - The company recognizes climate change impacts and aligns its sustainability reporting with TCFD recommendations, identifying climate-related opportunities and evaluating risks through its enterprise risk management process[57] - Vision 2030 goals include a 35% reduction in Scope 1, 2, and 3 GHG emissions by 2030 (from 2019 levels), approved by SBTi as consistent with the 2015 Paris Agreement[60] - The company uses carbon-neutral biomass and manufacturing residuals for most of its energy and is an early adopter of the Taskforce on Nature-related Financial Disclosures (TNFD)[61][60] Raw Materials Essential raw materials include wood fiber (pulpwood, wood chips, OCC) and chemicals like caustic soda and starch - Essential raw materials include wood fiber (pulpwood, wood chips, OCC) and chemicals (caustic soda, starch, adhesives)[79] Information About Our Executive Officers This section lists the executive officers of the company as of the filing date, including key leadership roles - The report lists the executive officers as of the filing date, including Mark S. Sutton (Chairman and CEO), Clay R. Ellis (SVP - Global Cellulose Fibers and IP Asia), Aimee Gregg (SVP, Supply Chain and IT), W. Thomas Hamic (SVP - North American Container and CCO), Allison B. Magness (SVP Manufacturing and EHS), Timothy S. Nicholls (SVP and CFO), Thomas J. Plath (SVP - Human Resources and Corporate Affairs), James P. Royalty, Jr. (SVP - Containerboard and Recycling), Joseph R. Saab (SVP, General Counsel and Corporate Secretary), and Ksenia N. Sosnina (SVP, Europe, Middle East & Africa)[80][81][82][83][84][85][86][87][88][89][90] Forward-looking Statements The report contains forward-looking statements subject to risks and uncertainties, including climate change and economic conditions - The report contains forward-looking statements identified by words like 'expects,' 'anticipates,' 'believes,' 'estimates,' and 'could,' which are subject to risks and uncertainties that could cause actual results to differ materially[91] - Key risk categories include climate change, indebtedness, economic conditions, international business, pension/healthcare costs, and legal/regulatory compliance[91] Risk Factors The company faces material risks from macroeconomic conditions, international business, climate change, indebtedness, competition, and operational/legal challenges - Adverse macroeconomic conditions, including inflation, elevated interest rates, and challenging labor markets, have negatively impacted and are expected to continue to affect the company's operations, leading to lower demand and higher costs[95][97] - International operations are subject to risks such as economic/political instability, geopolitical events (e.g., Russia-Ukraine, Israel-Hamas conflicts), currency fluctuations, trade protectionism, and regulatory environments, which could adversely affect financial results[99][101] - Climate change and sustainability matters pose risks including operational impacts from severe weather, supply chain disruptions, increased raw material costs, and higher capital/operational costs to meet GHG emission reduction targets (e.g., Vision 2030 goal of 35% reduction in Scope 1, 2, and 3 GHG emissions by 2030)[104][106] - The company's approximately $5.6 billion indebtedness as of December 31, 2023, could limit financing, divert cash flow, and increase vulnerability to economic downturns or interest rate changes[108][110] - The company operates in a challenging labor market, making it difficult to attract and retain qualified personnel, leading to higher labor costs and potential shortages. Union negotiations also pose risks of work stoppages or unfavorable contract terms[129][131][132] - Cybersecurity threats, including targeted attacks, ransomware, and data breaches, are increasing in volume and complexity, potentially leading to lost sales, operational disruptions, reputational damage, and significant remediation costs[133][135] RISKS RELATING TO MARKET AND ECONOMIC FACTORS Adverse economic conditions, including inflation and high interest rates, along with international instability, impact demand, supply chains, and costs - General economic conditions, including inflationary pressures and elevated interest rates, adversely affect demand for products, supply chains, and labor, leading to lower sales and higher costs[95][97] - International business risks include economic/political instability, geopolitical events (e.g., Russia-Ukraine, Israel-Hamas conflicts), currency fluctuations, trade protectionist policies, and adverse tax consequences[99][100][101] - The sale of the Ilim ownership stake was completed in Q3 2023, but ongoing geopolitical instability may still affect the company[101] RISKS RELATED TO CLIMATE AND WEATHER Climate change and severe weather can disrupt operations and supply chains, while sustainability pressures increase costs and reputational risks - Climate change impacts, such as rising temperatures and severe weather, can cause operational disruptions, supply chain issues, and increased raw material costs[104] - Increased focus on sustainability leads to more prescriptive reporting requirements and pressure to meet targets (e.g., Vision 2030 GHG reduction goal), increasing capital and operational costs[105][106] - Failure to meet sustainability targets or negative perceptions could harm reputation and stakeholder relationships[106] RISKS RELATED TO OUR INDEBTEDNESS High indebtedness, variable rate debt, and potential credit rating downgrades could limit financing, increase costs, and accelerate tax liabilities - As of December 31, 2023, the company had approximately $5.6 billion in outstanding indebtedness, which could limit financing, divert cash flow, and increase vulnerability to economic downturns[108] - Variable rate debt (approx. $908 million as of Dec 31, 2023) exposes the company to interest rate risk, with significant rate increases in 2022-2023 impacting costs[110] - A downgrade in credit ratings could increase borrowing costs, limit capital market access, and require collateral for derivatives[111][113] - Downgrades of banks issuing letters of credit supporting Temple-Inland timber monetization notes could lead to additional costs or acceleration of up to $485 million in deferred income taxes[114] RISKS RELATING TO OUR PENSION AND HEALTHCARE COSTS Pension and healthcare costs are sensitive to market returns, interest rates, and regulatory changes, potentially increasing future cash outflows - Pension and healthcare costs are influenced by market returns on assets, interest rates, number of retirees, and changes in legal requirements, potentially increasing future costs[115] - While the U.S. funded pension plan was overfunded by $118 million on a projected benefit obligation basis at December 31, 2023, future cash payments may be required, reducing available cash[116] RISKS RELATING TO INDUSTRY CONDITIONS Profitability is affected by raw material, energy, and transportation costs, with limited ability to pass on increases due to competition and market cyclicality - Profitability is affected by changes in raw material costs (wood fiber, recycled fiber, chemicals), energy, and transportation, with significant increases experienced due to ongoing inflationary conditions[117] - The company may be unable to fully recoup cost increases through price adjustments due to highly competitive industry segments[117] - Product prices and demand are sensitive to economic cyclicality, customer/consumer preferences (e.g., shifts to non-fiber substitutes), and government regulations (e.g., single-use packaging)[118][119] - Competition from other forest products companies, substitutes (plastics, metal), and new entrants, along with product innovations and AI/machine learning, could negatively impact financial results[120] RISKS RELATING TO OUR OPERATIONS Operational disruptions, unachieved strategic transaction benefits, potential tax liabilities, and labor market challenges pose risks - Material disruptions at manufacturing facilities due to adverse weather, raw material shortages, cyber-attacks, equipment failures, or labor difficulties could prevent meeting customer demand and negatively impact financial results[121][122] - Strategic transactions (acquisitions, divestitures, capital investments) may not achieve expected benefits, leading to impairment charges or unanticipated disruptions[123][124] - The company could be exposed to liability for Brazilian taxes under agreements with Sylvamo Corporation, potentially requiring payment of 60% of the first $300 million and 100% over $300 million for assessments totaling approximately $393 million[128] - Challenges in attracting and retaining qualified personnel, particularly in a competitive labor market, can lead to higher labor costs and shortages. Union negotiations also present risks of work stoppages[129][131][132] RISKS RELATING TO LEGAL PROCEEDINGS AND COMPLIANCE COSTS Compliance with diverse global laws, evolving data privacy and AI regulations, and unfavorable legal outcomes could lead to litigation, fines, and tax liabilities - Operations are subject to a wide variety of U.S. and non-U.S. laws and regulations (environmental, health, safety, labor, data privacy, tax), with changes or non-compliance potentially leading to litigation, fines, and reputational harm[139][140][141] - The evolving regulatory environment for data privacy (e.g., GDPR, CCPA) and AI (e.g., Biden Executive Order) may require significant resources for compliance, changes to business practices, and could result in penalties or competitive disadvantages[142][143][144][146][147] - Unfavorable outcomes in legal, regulatory, or governmental proceedings, including environmental matters, could have a material adverse impact on financial results[148] - The tax-free status of the Sylvamo Corporation spin-off could be challenged by the IRS, potentially resulting in significant U.S. federal income tax liabilities for International Paper and its shareholders[149][150][151] Unresolved Staff Comments There are no unresolved staff comments to report - No unresolved staff comments[152] Cybersecurity International Paper integrates cybersecurity risk management into its enterprise risk program, employing layered controls, third-party assessments, and incident response plans - Cybersecurity risk management is integrated into the company's enterprise risk management program, with oversight from the Board of Directors and its Audit and Finance Committee and PPE Committee[153][162] - The IT Risk Governance Program, led by the CISO, identifies, manages, and measures cybersecurity risks, including targeted attacks, ransomware, and data theft[154][155][156][164] - Key aspects of the cybersecurity program include layered technical controls, independent third-party assessments, employee training, global security policies, and business continuity/incident response procedures[157][158] - The company has processes to oversee third-party service providers' cybersecurity risks, including risk-based due diligence and continuous monitoring[159] - Cybersecurity events are managed by a Cybersecurity Incident Response Team (CIRT) and escalated to the Business Continuity Incident Command Team and Disclosure Committee for review and materiality assessment[165] RISK MANAGEMENT AND STRATEGY Cybersecurity risk management is integrated into the enterprise risk program, identifying and managing threats through controls, assessments, and training - The company's cybersecurity risk management is part of its overall enterprise risk management program, overseen by the Board of Directors and the ERM Council[153] - An IT Risk Governance Program, carried out by an IT Risk Identification and Mitigation Team (IT RIM), identifies and manages cybersecurity risks such as targeted attacks, ransomware, and data theft[154][155][156] - The cybersecurity program includes technical protective capabilities, third-party assessments, employee training, global security policies, and incident response plans[157] Engagement of Third Parties The company engages independent third parties for incident response, security program assessments, and penetration testing, with internal audit also conducting assessments - The company engages independent third parties for incident response expertise, annual security program assessments (benchmarked against NIST Cybersecurity Framework), and external/internal penetration testing[158][161] - The Internal Audit team also conducts annual assessments of cyber programs and controls[158] Oversight of Third Parties The cybersecurity program includes processes for overseeing and identifying material risks from third-party service providers through due diligence and monitoring - The cybersecurity risk management program includes processes to oversee and identify material risks from third-party service providers, with risk-based due diligence and continuous monitoring for critical services[159] - Service providers are required to provide prompt notification of any actual or suspected breaches[159] GOVERNANCE The Board oversees cybersecurity risk management, supported by the CISO and a cyber-incident response plan for operational and non-operational events - The Board of Directors, supported by the Audit and Finance Committee and PPE Committee, oversees cybersecurity risk management, receiving periodic updates from management[162][163] - The CISO, with over 25 years in IT and leading security efforts since 2011, reports to the CIO and leads the cybersecurity risk management program[164] - A cyber-incident response plan, led by the Cybersecurity Incident Response Team (CIRT), addresses operational and non-operational events, with escalation procedures for significant incidents[165] Properties International Paper's owned production facilities are in good operating condition, with planned capital investments for 2024 ranging from $800 million to $1.0 billion - A listing of production facilities by segment is provided in Appendix I, with the vast majority being owned by the company[166] - Facilities are in good operating condition, and the company continuously evaluates modernization or other alternatives for higher-cost facilities[166] - Capital spending for 2024 is expected to be approximately $800 million to $1.0 billion[167] Mills and Plants The company's production facilities, listed in Appendix I, are generally owned and maintained in good operating condition - The company's production facilities are listed in Appendix I and are generally owned and in good operating condition[166] Capital Investments and Dispositions The company evaluates business opportunities, including acquisitions and dispositions, with planned capital investments for 2024 of $800 million to $1.0 billion - The company continually evaluates business opportunities, including acquisitions, sales, and dispositions of properties[167] - Planned capital investments for 2024 are approximately $800 million to $1.0 billion[167] Legal Proceedings Legal proceedings are detailed in Note 14, with no current environmental proceedings expected to result in monetary sanctions of $1 million or more - Information concerning legal proceedings is detailed in Note 14, Commitments and Contingent Liabilities[168] - The company is not subject to any environmental proceedings likely to result in monetary sanctions of $1 million or more[168] Mine Safety Disclosures This item is not applicable to the company - Mine Safety Disclosures are not applicable[169] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities International Paper's common shares trade on NYSE, with regular dividends and a $2.96 billion share repurchase authorization remaining - International Paper's common shares are traded on the New York Stock Exchange (NYSE: IP)[171] - As of February 9, 2024, there were approximately 8,188 record holders of common stock[171] - The company pays regular quarterly cash dividends and expects to continue doing so, subject to Board approval[172] Purchases of Equity Securities by the Issuer | Period | Total Number of Shares Purchased (a) | Average Price Paid per Share | Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs (in billions) | | :--- | :--- | :--- | :--- | | October 1, 2023 - October 31, 2023 | 5,373 | $35.19 | $2.96 | | November 1, 2023 - November 30, 2023 | 3,992 | $33.71 | $2.96 | | December 1, 2023 - December 31, 2023 | 1,241 | $38.82 | $2.96 | | Total | 10,606 | | | - As of December 31, 2023, approximately $2.96 billion aggregate shares of common stock remained authorized for repurchase under a program with no expiration date[173] Reserved This item is reserved and contains no information Management's Discussion and Analysis of Financial Condition and Results of Operations 2023 net earnings decreased to $288 million due to lower demand and cost inflation; 2024 expects market recovery and $400 million in benefits from initiatives Full-Year Net Earnings Attributable to Shareholders | Year | Net Earnings (in millions) | Diluted EPS | | :--- | :--- | :--- | | 2023 | $288 | $0.82 | | 2022 | $1,504 | $4.10 | - 2023 performance was impacted by lower underlying demand, inventory destocking, declining sales prices, and continued cost inflation[180] - The company completed the sale of its Ilim ownership stake for $508 million in 2023 and returned approximately $840 million to shareholders ($640 million in dividends, $200 million in share repurchases)[180][184] - Strategic actions in 2023 included the permanent closure of the Orange, Texas containerboard mill and two pulp machines, resulting in significant non-cash asset write-offs and cash severance charges[185][186] - For full-year 2024, the company expects market recovery, industry growth of approximately 3% for packaging and fluff pulp, and over $400 million in net benefits from commercial and operational initiatives[184] Cash Flow Summary | Metric | 2023 (in millions) | 2022 (in millions) | | :--- | :--- | :--- | | Cash provided by operations (including discontinued operations) | $1,833 | $2,174 | | Free Cash Flow | $692 | $1,243 | Executive Summary 2023 net earnings decreased due to lower demand and cost inflation, with strategic actions and initiatives expected to drive 2024 market recovery Full-Year Net Earnings Attributable to Shareholders | Year | Net Earnings (in millions) | Diluted EPS | | :--- | :--- | :--- | | 2023 | $288 | $0.82 | | 2022 | $1,504 | $4.10 | - 2023 was characterized by lower demand, inventory destocking, declining sales prices, and continued cost inflation, leading to lower sales and earnings compared to 2022[180] - The company completed the sale of its Ilim ownership stake for $508 million and returned approximately $840 million to shareholders in 2023[180] - Strategic actions included the permanent closure of the Orange, Texas containerboard mill and two pulp machines, incurring significant charges in Q4 2023[185][186] - For Q1 2024, earnings are expected to trough due to seasonally lower volumes, higher costs, and winter freeze impacts, with full-year 2024 projected as a transitional year with market recovery and over $400 million in net benefits from initiatives[182][183][184] Adjusted Operating Earnings (Loss) Attributable to Shareholders | Metric | 2023 (in millions) | 2022 (in millions) | | :--- | :--- | :--- | | Net Earnings (Loss) Attributable to Shareholders | $288 | $1,504 | | Less - Discontinued operations, net of taxes (gain) loss | 14 | 237 | | Earnings (Loss) from Continuing Operations | 302 | 1,741 | | Add back - Non-operating pension expense (income) | 54 | (192) | | Add back - Net special items expense (income) | 572 | 233 | | Income tax effect - Non-operating pension and special items | (173) | (614) | | Adjusted Operating Earnings (Loss) Attributable to Shareholders | $755 | $1,168 | Adjusted Operating Earnings (Loss) Per Share Attributable to Shareholders | Metric | 2023 (per share) | 2022 (per share) | | :--- | :--- | :--- | | Diluted Earnings (Loss) Per Share Attributable to Shareholders | $0.82 | $4.10 | | Less - Discontinued operations, net of taxes (gain) loss per share | 0.04 | 0.64 | | Diluted Earnings (Loss) Per Share from Continuing Operations | 0.86 | 4.74 | | Add back - Non-operating pension expense (income) per share | 0.15 | (0.52) | | Add back - Net special items expense (income) per share | 1.64 | 0.63 | | Income tax effect per share - Non-operating pension and special items | (0.49) | (1.67) | | Adjusted Operating Earnings (Loss) Per Share Attributable to Shareholders | $2.16 | $3.18 | Results of Operations Total Business Segment Operating Profit decreased by $599 million in 2023 due to lower sales, prices, and higher operating costs, partially offset by lower input costs Business Segment Operating Profit (Loss) | Segment | 2023 (in millions) | 2022 (in millions) | | :--- | :--- | :--- | | Industrial Packaging | $1,266 | $1,742 | | Global Cellulose Fibers | $(17) | $106 | | Total Business Segment Operating Profit (Loss) | $1,249 | $1,848 | - Total Business Segment Operating Profit (Loss) decreased by $599 million in 2023 compared to 2022, primarily due to lower average sales price and unfavorable mix ($435 million), lower sales volumes ($228 million), and higher operating costs ($926 million), partially offset by lower input costs ($982 million)[195] Net Sales | Year | Net Sales (in billions) | | :--- | :--- | | 2023 | $18.9 | | 2022 | $21.2 | - International net sales (including U.S. exports) were $5.3 billion (28% of total sales) in 2023, down from $5.9 billion in 2022[203] - The 'Building a Better IP' initiatives contributed $260 million of earnings in 2023[206] - The Ilim equity investment results are presented as Discontinued Operations, net of taxes, following its sale in September 2023, including after-tax losses of $126 million in 2023 and $533 million in 2022 for impairment and transaction costs[209][210] Income Tax Provision (Benefit) and Operational Tax Rate | Metric | 2023 (in millions) | 2022 (in millions) | | :--- | :--- | :--- | | Net income tax provision (benefit) from continuing operations | $59 | $(236) | | Reported effective income tax rate | 15% | (16)% | | Operational Tax Provision (non-GAAP) | $232 | $378 | | Operational Tax Rate (non-GAAP) | 23% | 24% | - Net corporate interest expense decreased to $231 million in 2023 from $325 million in 2022, primarily due to higher interest income[215] Description of Business Segments The company's segments are Industrial Packaging (fiber-based packaging) and Global Cellulose Fibers (sustainable pulp) - Industrial Packaging focuses on fiber-based packaging products like linerboard, medium, and corrugated packaging, with over 13 million tons of U.S. production capacity annually[224][225] - Global Cellulose Fibers produces sustainable pulp for absorbent hygiene products, textiles, and construction materials, with an annual dried pulp capacity of about 3 million metric tons[226] Business Segment Results Both Industrial Packaging and Global Cellulose Fibers experienced decreased operating profits in 2023 due to lower sales, prices, and higher operating costs Industrial Packaging Performance | Metric | 2023 (in millions) | 2022 (in millions) | | :--- | :--- | :--- | | Net Sales | $15,596 | $17,451 | | Operating Profit (Loss) | $1,266 | $1,742 | | YoY Change in Operating Profit | -27% | | - North American Industrial Packaging saw lower average sales margins and decreased sales volumes in 2023 due to soft demand and consumer shifts, with input costs significantly lower but operating costs higher due to inflation and economic downtime[231] - EMEA Industrial Packaging experienced lower average sales margins and sales volumes in 2023, with higher operating costs due to inflation, but significantly lower input costs[233] Global Cellulose Fibers Performance | Metric | 2023 (in millions) | 2022 (in millions) | | :--- | :--- | :--- | | Net Sales | $2,890 | $3,227 | | Operating Profit (Loss) | $(17) | $106 | | YoY Change in Operating Profit | -123 million | | - Global Cellulose Fibers experienced lower sales volumes in 2023 due to customer inventory destocking, lower average sales margins, and higher operating/maintenance costs, partially offset by lower input costs[237] Liquidity and Capital Resources Cash provided by operations and free cash flow decreased in 2023, but the company maintains a strong liquidity position with investment-grade credit ratings Cash Flow from Operations and Free Cash Flow | Metric | 2023 (in millions) | 2022 (in millions) | | :--- | :--- | :--- | | Cash provided by operations (including discontinued operations) | $1,833 | $2,174 | | Free Cash Flow | $692 | $1,243 | Capital Spending by Business Segment | Segment | 2023 (in millions) | 2022 (in millions) | | :--- | :--- | :--- | | Industrial Packaging | $928 | $762 | | Global Cellulose Fibers | $177 | $143 | | Corporate and other | $36 | $26 | | Total Capital Spending | $1,141 | $931 | - Capital spending for 2024 is expected to be $800 million to $1.0 billion, or 78% to 97% of expected depreciation and amortization[243][254] - Financing activities in 2023 included net debt issuances of $3 million and $218 million in common stock repurchases and restricted stock withholding taxes[245][246] - The company's liquidity position is strong, supported by $1.9 billion in credit facilities (amended in June 2023 to $1.4 billion committed bank facility and $500 million receivables securitization program) and a $1.0 billion commercial paper program[198][254][255][256] - The company maintains investment-grade credit ratings (BBB stable by S&P, Baa2 stable by Moody's) and was in compliance with all debt covenants at December 31, 2023[263][504] Contractual Obligations for Future Payments (as of Dec 31, 2023, in millions) | Obligation Type | 2024 | 2025 | 2026 | 2027 | 2028 | Thereafter | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Debt maturities (a) | $138 | $189 | $143 | $333 | $670 | $4,120 | | Operating lease obligations | 171 | 127 | 89 | 60 | 33 | 31 | | Purchase obligations (b) | 2,222 | 847 | 698 | 507 | 363 | 1,863 | | Total (c) | $2,531 | $1,163 | $930 | $900 | $1,066 | $6,014 | Critical Accounting Policies and Significant Accounting Estimates Critical accounting policies involve significant management judgment and estimates for contingencies, asset impairment, pensions, and income taxes - Critical accounting policies include contingencies, impairment of long-lived assets and goodwill, pensions, and income taxes, all requiring significant management judgment and estimates[267][268] - Accruals for contingent liabilities (personal injury, product liability, environmental, asbestos) are recorded when probable and reasonably estimable, with environmental liabilities estimated at $251 million and asbestos-related claims at $97 million (net of insurance) as of December 31, 2023[269][270] - Goodwill impairment tests are performed annually (or more frequently if indicators arise) using a quantitative assessment based on discounted future cash flows, market multiples, and transaction multiples[272][275][276] Pension Benefit Obligations and Discount Rates | Metric | 2023 (in millions) | 2022 (in millions) | | :--- | :--- | :--- | | U.S. qualified pension benefit obligation | $8,718 | $8,816 | | U.S. qualified pension plan assets | $8,836 | $8,845 | | U.S. qualified pension overfunded balance | $118 | $297 | | Discount rate (U.S. pension obligations) | 5.10% | 5.40% | - The company estimates net pension income of approximately $7 million for its U.S. defined benefit plans in 2024, a significant change from $94 million expense in 2023[283][281] - Valuation allowances for deferred tax assets were $848 million at December 31, 2023, reflecting significant judgment in assessing future taxable income[286] Legal Proceedings Information on environmental and other legal proceedings is detailed in Note 14, with no current proceedings exceeding $1 million in sanctions - Information concerning environmental and other legal proceedings is detailed in Note 14, Commitments and Contingent Liabilities[288] - The company is not subject to any administrative or judicial environmental proceedings likely to result in monetary sanctions of $1 million or more[288] Recent Accounting Developments The company adopted ASU 2022-04 in Q1 2023 and is evaluating new ASUs on Segment Reporting and Income Taxes - The company adopted ASU 2022-04 on Liabilities - Supplier Finance Programs in Q1 2023, requiring disclosure of supplier finance program obligations[290][379] - New ASUs on Segment Reporting (ASU 2023-07) and Income Taxes (ASU 2023-09) are effective for annual periods beginning after December 15, 2023, and December 15, 2024, respectively, and are currently being evaluated for impact[380][381] Effect of Inflation Inflationary increases in input costs adversely impacted operating results in 2023 and 2022 due to market conditions and supply shortages - Inflationary increases in input costs (energy, wood, recycled fiber, freight, chemicals) adversely impacted operating results in 2023 and 2022[291] - The effects of inflation have been more significant recently due to general inflationary conditions, labor market conditions, economic activity, consumer behavior, and supply shortages[291] Foreign Currency Effects Currency movements directly impact financial statements through translation and remeasurement, and indirectly affect competitiveness and pricing - Currency movements directly impact financial statements through translation of international operations and remeasurement of non-functional currency assets/liabilities[292] - Indirect impacts include changes in competitiveness of imports/exports and local currency pricing of internationally traded products[292] - A weaker U.S. dollar and stronger local currency are generally beneficial, with the Euro having the most significant impact[292] Market Risk The company uses financial instruments and derivatives to manage interest rate, commodity, and foreign currency risks, assessing potential loss via sensitivity analysis - The company uses financial instruments, including fixed/variable rate debt and derivatives, to manage interest rate, commodity, and foreign currency risks, not for trading purposes[293] - Market risk is assessed using sensitivity analysis, measuring potential loss from a hypothetical 10% change in rates or prices[295] Quantitative and Qualitative Disclosures About Market Risk This section refers to the preceding discussion on market risk within Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations - Quantitative and qualitative disclosures about market risk are provided in the preceding discussion within Item 7[301] Financial Statements and Supplementary Data This section presents the audited consolidated financial statements, including statements of operations, balance sheet, cash flows, and equity, with management and auditor reports - Management is responsible for the preparation of consolidated financial statements in conformity with U.S. GAAP and believes they fairly present the company's financial position, results of operations, and cash flows[303] - The company's internal control over financial reporting was assessed as effective as of December 31, 2023, based on COSO criteria[308] - Deloitte & Touche LLP issued an unqualified opinion on the financial statements and the effectiveness of internal control over financial reporting[316][318][326] - A critical audit matter identified was the valuation of Qualified Pension Plan investments whose reported value is determined based on Net Asset Value (NAV), requiring significant auditor judgment[321][322][324] Report of Management on Financial Statements, Internal Control over Financial Reporting and Internal Control Environment and Board of Directors Oversight Management affirms responsibility for U.S. GAAP-compliant financial statements and effective internal control over financial reporting, overseen by the Board - Management affirms responsibility for consolidated financial statements prepared in conformity with U.S. GAAP and believes they fairly present the company's financial position, results of operations, and cash flows[303] - The company's internal control over financial reporting was assessed as effective as of December 31, 2023, based on the COSO framework[308] - The internal control environment includes an ethics program, a toll-free helpline for reporting violations, and an extensive internal audit program, with Board of Directors oversight through the Audit and Finance Committee[310][311] Reports of Deloitte & Touche LLP, Independent Registered Public Accounting Firm Deloitte & Touche LLP issued an unqualified opinion on financial statements and internal control, identifying pension plan investment valuation as a critical audit matter - Deloitte & Touche LLP issued an unqualified opinion on the consolidated financial statements for the three years ended December 31, 2023, and on the effectiveness of internal control over financial reporting as of December 31, 2023[316][318][326] - The valuation of Qualified Pension Plan investments based on Net Asset Value (NAV) was identified as a critical audit matter due to the lack of readily determinable value and subjective valuation methodologies[321][322][324] Consolidated Statement of Operations This table presents the company's consolidated statement of operations, detailing net sales, expenses, and net earnings for 2021-2023 Consolidated Statement of Operations (in millions, except per share amounts) | Metric | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Net Sales | $18,916 | $21,161 | $19,363 | | Cost of products sold | 13,629 | 15,143 | 13,832 | | Selling and administrative expenses | 1,360 | 1,293 | 1,385 | | Depreciation, amortization and cost of timber harvested | 1,432 | 1,040 | 1,097 | | Distribution expenses | 1,575 | 1,783 | 1,444 | | Interest expense, net | 231 | 325 | 337 | | Non-operating pension (income) expense | 54 | (192) | (200) | | Earnings (Loss) From Continuing Operations Before Income Taxes And Equity Earnings (Losses) | 382 | 1,511 | 999 | | Income tax provision (benefit) | 59 | (236) | 188 | | Equity earnings (loss), net of taxes | (21) | (6) | 2 | | Earnings (Loss) From Continuing Operations | 302 | 1,741 | 813 | | Discontinued operations, net of taxes | (14) | (237) | 941 | | Net Earnings (Loss) Attributable to International Paper Company | $288 | $1,504 | $1,752 | | Diluted Earnings (Loss) Per Share Attributable to International Paper Company Common Shareholders | $0.82 | $4.10 | $4.47 | Consolidated Statement of Comprehensive Income This table presents the company's consolidated statement of comprehensive income, including net earnings and other comprehensive income for 2021-2023 Consolidated Statement of Comprehensive Income (Loss) (in millions) | Metric | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Net Earnings (Loss) | $288 | $1,504 | $1,754 | | Other Comprehensive Income (Loss), Net of Tax | 360 | (259) | 901 | | Comprehensive Income (Loss) Attributable to International Paper Company | $648 | $1,245 | $2,655 | Consolidated Balance Sheet This table presents the company's consolidated balance sheet, detailing assets, liabilities, and equity as of December 31, 2023 and 2022 Consolidated Balance Sheet (in millions) | Asset/Liability | 2023 | 2022 | | :--- | :--- | :--- | | ASSETS | | | | Cash and temporary investments | $1,113 | $804 | | Total Current Assets | 6,608 | 6,770 | | Plants, Properties and Equipment, net | 10,150 | 10,431 | | Goodwill | 3,041 | 3,041 | | Overfunded Pension Plan Assets | 118 | 297 | | TOTAL ASSETS | $23,261 | $23,940 | | LIABILITIES AND EQUITY | | | | Notes payable and current maturities of long-term debt | $138 | $763 | | Total Current Liabilities | 3,959 | 5,000 | | Long-Term Debt | 5,455 | 4,816 | | Deferred Income Taxes | 1,552 | 1,732 | | Underfunded Pension Benefit Obligation | 280 | 281 | | Total Equity | $8,355 | $8,497 | | TOTAL LIABILITIES AND EQUITY | $23,261 | $23,940 | Consolidated Statement of Cash Flows This table presents the company's consolidated statement of cash flows, detailing operating, investing, and financing activities for 2021-2023 Consolidated Statement of Cash Flows (in millions) | Activity | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Cash Provided By (Used For) Operating Activities | $1,833 | $2,174 | $2,030 | | Cash Provided By (Used For) Investment Activities | $(668) | $(608) | $6,054 | | Cash Provided By (Used For) Financing Activities | $(866) | $(2,054) | $(7,375) | | Change in Cash and Temporary Investments | $309 | $(491) | $700 | | Cash and Temporary Investments, End of the period | $1,113 | $804 | $1,295 | Consolidated Statement of Changes in Equity This table presents the company's consolidated statement of changes in equity, detailing movements in shareholder equity for 2021-2023 Consolidated Statement of Changes in Equity (in millions) | Metric | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Balance, January 1 | $8,497 | $9,082 | $7,854 | | Issuance of stock for various plans, net | $82 | $132 | $143 | | Repurchase of stock | $(220) | $(1,284) | $(839) | | Dividends paid | $(652) | $(678) | $(793) | | Comprehensive income (loss) | $648 | $1,245 | $2,655 | | Balance, December 31 | $8,355 | $8,497 | $9,082 | Notes to Consolidated Financial Statements This section provides detailed notes to the consolidated financial statements, covering significant accounting policies and specific financial accounts Changes in and Disagreements with Accountants on Accounting and Financial Disclosure There have been no changes in or disagreements with accountants on accounting and financial disclosure - No changes in or disagreements with accountants on accounting and financial disclosure[576] Controls and Procedures As of December 31, 2023, disclosure controls and procedures were effective, with no material changes in internal control during Q4 2023 - The company's disclosure controls and procedures were effective as of December 31, 2023[577] - No material changes in internal control over financial reporting occurred during the quarter ended December 31, 2023[578] Other Information Ms. Kathryn D. Sullivan adopted a Rule 10b5-1 Trading Plan in November 2023 to sell up to 12,000 common shares - Ms. Kathryn D. Sullivan, a Board member, adopted a Rule 10b5-1 Trading Plan on November 14, 2023, to sell up to 12,000 common shares from February to November 2024[580] - No other director or Section 16 officer adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during Q4 2023[581] Disclosure Regarding Foreign Jurisdictions That Prevent Inspections There are no disclosures regarding foreign jurisdictions that prevent inspections - No disclosures regarding foreign jurisdictions that prevent inspections[582] Part III Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the definitive proxy statement, including the Code of Conduct - Information concerning directors, executive officers, and corporate governance is incorporated by reference to the definitive proxy statement[584] - The company's Code of Conduct applies to all employees, including the CEO and senior financial officers, as well as the Board of Directors[585] - Amendments to the Code and any waivers granted to directors, CEO, and senior financial officers are disclosed on the company's website[585] Executive Compensation Information regarding executive compensation is incorporated by reference from the definitive proxy statement - Information on executive compensation is incorporated by reference to the definitive proxy statement[588] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Details on security ownership of certain beneficial owners and management, and equity compensation plan information, are incorporated by reference - A description of security ownership of certain beneficial owners and management and equity compensation plan information is incorporated by reference to the definitive proxy statement[589] Certain Relationships and Related Transactions, and Director Independence Information concerning certain relationships, related transactions, and director independence matters is incorporated by reference from the definitive proxy statement - Information on certain relationships, related transactions, and director independence matters is incorporated by reference to the definitive proxy statement[590] Principal Accountant Fees and Services Information regarding fees paid to and services rendered by the independent registered public accounting firm, and pre-approval policies, is incorporated by reference - Information on fees paid to and services rendered by the independent registered public accounting firm, and pre-approval policies, is incorporated by reference to the definitive proxy statement[591] Part IV Exhibits and Financial Statement Schedules This section lists all exhibits and financial statement schedules filed as part of the 10-K report, including transaction agreements and additional financial data - This item includes a list of exhibits and financial statement schedules, such as transaction agreements, corporate governance documents, debt instruments, and incentive compensation plans[595][596][598][600][602][605] - Additional financial data for 2023, 2022, and 2021 is provided, to be read in conjunction with the consolidated financial statements[594][595] Form 10-K Summary This item indicates that no Form 10-K Summary is provided - No Form 10-K Summary is provided[604] Signatures The report is duly signed by key executives and directors of International Paper Company as of February 16, 2024 - The report is signed by Joseph R. Saab, Senior Vice President, General Counsel and Corporate Secretary, on February 16, 2024[607] - Mark S. Sutton, Chairman of the Board & Chief Executive Officer, and other directors and financial officers also signed the report on February 16, 2024[608][609] Appendix I 2023 Listing of Facilities Appendix I provides a detailed listing of International Paper's production facilities by segment and geographic location, noting recent closures - Appendix I lists all production facilities for Industrial Packaging (Containerboard, Corrugated Packaging, Recycling, Bags), Global Cellulose Fibers (Pulp), and Distribution[611][612] - The listing specifies facilities in the U.S., International (Mexico, Morocco, Spain, Chile, France, Italy, Canada, Poland), and Asia (China, Japan, Korea, Singapore)[611][612] - Notes indicate the Orange, Texas mill was closed in December 2023, and one corrugated packaging location in Illinois was closed in January 2023[612] Appendix II 2023 Capacity Information Appendix II details International Paper's 2023 production capacity by segment and geographic area, including containerboard and dried pulp, with notes on recent closures 2023 Capacity Information (in thousands of short tons except as noted) | Segment | U.S. | EMEA | Americas, other than U.S. | Total | | :--- | :--- | :--- | :--- | :--- | | Industrial Packaging (a) Containerboard | 13,829 | 560 | 27 | 14,416 | | Global Cellulose Fibers (b) Dried Pulp (in thousands of metric tons) | 2,749 | — | 373 | 3,122 | - U.S. containerboard capacity includes the Orange, Texas mill, which was permanently closed in December 2023[613] - U.S. dried pulp capacity includes pulp machines at Riegelwood, North Carolina, and Pensacola, Florida mills, which were permanently shut down in December 2023 and August 2023, respectively[614]